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Is It Time to Look at Private Markets?

2023 was a difficult year across the private markets space with many companies finding funding difficult to secure, despite apparent business success. This has led to more rational valuations and a willingness for founders to offer deals to give their businesses additional time to realise their potential.

While we don’t expect 2024 to be a boom year, we are seeing some excellent investment opportunities and think the current environment is ripe for investors willing to do their due diligence.

This note provides a broad overview of the Venture Capital (VC), Private Equity (PE), and Secondary Market sectors, addresses key challenges faced by each of these sectors, and offers an insight into how we are approaching 2024.

Venture Capital

Startup Investment
In 2023, global startup investment was down 38% year-over-year, from $462 billion in 2022 to USD$285 billion [1]
Early-stage funding was down >40% , late-stage by 37%, and seed >30%[2]

Rising rates have hurt valuations

Many ventures that raised significant sums of capital at the height of the market euphoria (2019-2022) have faced steep declines in valuations as rising interest rates negatively impact long duration assets. In addition, a lack of exits/capital returns from investments across VC funds has caused a significant drop-off in new fund allocations to the asset class. The IPO market globally remained subdued with limited numbers of companies going public in 2023, often failing to perform post their listing.

Caution around deploying capital has made raising capital (for VC Funds and ventures) an uphill battle, depriving many ventures of the capital they need to grow, and increasingly, survive. Those firms which have been able to raise have often only been able to do so at very steep discounts to valuations of yesteryear. [3] [4]

This has tended to be more of an issue with later stage ventures and more pronounced in the US than Australia where valuations and exuberance were not as extreme. For all but the top quartile of performing ventures across both in the US and Australia, 2023 became known as the ‘VC Winter”.

Adversity creates opportunity

The correction of 2023 was both necessary and warranted in our opinion and makes 2024 an opportune time in the VC cycle to deploy capital, and we feel now is the time to invest in private markets, contrary to subdued sentiment.

Not only is there the opportunity to invest on more rational terms, but to invest in improved businesses that have cut costs and increased efficiency. In addition, with many large tech companies reducing or flattening their headcount in 2023, and increased startup insolvencies and redundancies, there now exists a greater access to talent, which has been a significant roadblock in previous years.

Patience and a long-term perspective will be the key for investors considering the current opportunities. Many investors became impatient last year and sought out liquidity, which is difficult to accommodate in private markets. More rational valuations will allow ventures to grow sustainably with more reasonable expectations creating greater alignment between both ventures and investors.

Key VC Opportunities

2023 saw the emergence of AI as a transformative thematic. The venture space saw a flood of capital flow into early-stage AI companies and this area of the market quickly became frothy with valuations blowing out. Whilst the technology offers immense potential, investors are encouraged to tread carefully to avoid hyperbole and take care to back underlying quality businesses. Established, market leading ventures embedding AI within their existing businesses present an attractive way to access this thematic in 2024.

VC Investments into sustainability/climate tech-related ventures remain more robust than other sectors, as do valuations. Despite public sentiment and governmental budgetary allocations favouring increased investment into the sector, it has not been immune to the overall downturn. Circular economy ventures solving waste and plastics issues offer potentially strong tailwinds due to the favourable regulatory changes (including those targeting large enterprises). Sustainable technology in the built environment is another area where we see continued growth [5] given the need for lower emissions from new and retrofitted buildings.  

B2B software businesses tend to be resilient in tougher times and are less likely to feel the strain, particularly if they provide genuine labour and cost savings or top line revenue opportunities. With global enterprise customers becoming more discerning and reconsidering new software purchases, it is crucial to consider both the market environment and the end customer of businesses you invest in.

Private Equity

In 2023, global private equity fundraising fell 11.5% year-over-year by aggregate value -the lowest total since 2017. [6]

As an asset class, PE was built on access to financing and thrives on low interest rates to generate outsized returns. As such, it should come as no surprise that PE hit its peak in 2021 with large fundraisings closing faster than ever and strong distributions to investors who were then reinvesting back into new funds and direct businesses.
Slowing IPO Markets
Activity tapered off in 2022 as interest rates began to rise and saw a rapid slowdown in 2023 as rates and inflation peaked. Liquidity, exits, trade sales, and acquisitions were all impacted by slowing global IPO markets.
Buyer/Seller Mismatch
Global PE exit value hit its lowest point in 2023 in over a decade, accumulating a total of USD$574.2bn [7]. Lowering valuations also created a mismatch between buyers and sellers with PE funds more reluctant to sell assets given the lower multiples. This in turn also saw several funds extend the life of their funds and reduce investor liquidity.

Moving forward, interest rates appear to have hit a ceiling (or near to one) providing more clarity both on levels of borrowing and cost of leverage. As a result, buyers appear more willing (albeit cautiously) to transact this year given the volume of available dry powder coupled with the need to deploy funds. Sellers however still need to come to the party and moderate their expectations given it is a buyers’ market. More than ever, focusing on quality companies is key in this environment and in the longer term this approach tends to perform more consistently.

Key PE Opportunities

The business landscape is predominantly made up of small to medium enterprises (SME’s) – many run by baby boomers who are exiting globally at an unprecedented rate. Within Australia, baby boomers own 40% of all SME’s, which equates to around 420,000 businesses [8]. Many of these businesses will make their way onto the market and can provide attractive opportunities for investors (though requires active management or need to retain founders and/or fund management buyouts). Given the capital that remains on the sidelines, as valuation multiples further contract, 2024 should see a further uptick in this space. These transactions are often too small for typical PE Funds.

While an established asset class in the US, Search Funds have only begun emerging in Australia in the past couple of years. A search fund is an investment vehicle, conceived in 1984, through which investors financially support an entrepreneur’s efforts to locate, acquire, manage, and grow a privately held company. A 2022 analysis of 526 qualifying search funds found the aggregate pre-tax internal rate of return to be 35.3%, and the aggregate pre-tax return on invested capital to be 5.2x [9]. With a small number of specialist funds being established locally in Australia, and greater understanding expected to follow, the asset class is an area of interest worth consideration.

Given some of the depressed valuations and companies’ needs for capital, 2024 will likely see the continuation of PE funds looking to take listed companies private. This presents a great opportunity for strong returns, but care is needed to ensure the strength of the underlying companies. Across listed markets, including the ASX, there are growing numbers of “zombie companies” with less than one year of runway [10].

Secondaries: 2024 - a breakout year?

An abundance of private capital availability over the last decade in addition to public market volatility and poor IPO performance has seen numerous companies decide to stay private for longer. As such, secondary sales have grown in importance over the past number of years as employees and early investors have sought a means to exit their positions.

Private Market Slowdown
Like VC and PE, 2022 saw secondary sales slow dramatically in line with the increases in interest rates.
Mismatched Valuations
Whilst 2023 saw a heightened level of activity, sellers overall were reluctant to offer the level of discounts needed to entice buyers at scale.
2024 and beyond
Turning Point?
However, more recently, ongoing depressed valuations and several funds extending the life(term) of their funds has led investors to seek more immediate liquidity than funds are willing to offer. This has seen a surge in the availabilities of secondaries, and we think 2024 will likely continue to present strong secondary investment opportunities across both VC & PE at attractive discounts. [11]
2024 and beyond

Again, ensuring one focuses on buying a quality underlying business is of primary importance in this space – not solely the level of discount you can buy at. Given a secondary transaction typically does not involve the company itself, deals can have limited documentation upon which due diligence can be conducted thoroughly. Investors need to be mindful of this opaque nature and get comfortable with the fact that the same depth of understanding and analysis as with a primary investment is likely unattainable.


Many of the issues faced by Private markets in 2023 are likely to linger in 2024, however we see a much more fruitful environment going forward. Investors also now have more time to make informed, rational decisions with greater emphasis on fundamental due diligence and analysis. We think that now is an opportune time to consider investments into the space, targeting companies with underlying quality, more reasonable valuations and the potential to deliver healthy returns for investors.

Carrara Capital is an alternative asset management investment firm that actively seeks out and invests in private market opportunities. If you would like to explore the current environment in more detail, understand our current investment theses and/or Carrara’s investment offerings, please feel free to contact us.


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